AOL shares rise after licensing deal with Microsoft

by Tom Carlson | Monday, Apr 9, 2012 | 395 views

With the increased pressure from shareholders over the increase in revenue, AOL has agreed upon selling and licensing its patents (worth $1.06 billion) to technology giant Microsoft . The deal sent the shares of AOL soaring high and touching the highest levels of the past two years .

The shares closed at $26.40, a 43% rise – the highest one day gain since November of 2009. The stocks had dipped by 8.2 % of their value in the last year until Monday. On the other hand, Microsoft stocks fell by 1.3 % and closed the day’s trading at $31.60 .

AOL, which has been hit by a slow growth rate in advertising and a rapid fall in the number of users for dial-up connections, looks to generate new funds in return for the nearly eight hundred patents and applications that it will give to Microsoft. The revenue collection of AOL had dipped by 29 % ever since its spin-off from Time Warner in 2009, which is what forced the firm to consider making such a move under increasing shareholder pressure.

Not many were expecting AOL to generate more than $1 billion of cash through the deal, but the firm has done a remarkable job in creating value out of the patent portfolio.

As Microsoft fights in various courts suits with Motorola Mobility Holdings over intellectual property rights regarding Windows OS in phones and video-game consoles, such as Xbox. The move is seen as building up its patents kitty in an effort to ward off litigation and garner their own products.

Microsoft could then use these patents to go after Android manufacturers who buy licensing for their operating systems from Google . Microsoft would be able to draw money out of its competitors (Google and other handsets companies) because of these patent rights.

Microsoft will gain nonexclusive licenses to the retained  patent portfolio of AOL  , as AOL will continue to hold 300 or more patents and applications even after the deal goes through. Microsoft, which had holdings of $52.7 billion at the end of last year, is planning to spend in a bid to keep the patents away from its competitors.

Microsoft has refused to comment on the fact of what these patents will cover and what the company will put them into use for.  But in a statement they had declared the purpose was to never fight in lawsuits.

AOL, on the other hand, was somewhat overwhelmed by the deal and has said that it is glad to turn its brand into business and through this deal it will be able to return some resources to its shareholders.

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